Question

The manager of a manufacturing company knows that they will need a new machine in one of their factories. The new machine will cost them $12,500. The manager has determined that they can afford to pay 15% of the cost of the machine in cash. They can then finance the rest through a credit union. The credit union will charge 2% per year compounded monthly. How much are their monthly payments for 3 years

Answer 1

Answer:

The monthly repayment is $304.33

Explanation:

The actual cost of the machine is $12,500,the amount to be paid monthly over 3 years is $12500-(15%*$12,500)=$10625

$10,625  is to be repaid over three years on monthly basis

We can use pmt formula in excel

=pmt(rate,nper,pv.fv)

rate is 2% per year to be divided by  12 months in order to arrive at monthly

2%/12=0.001666667

nper is 3 multiplied by 12 as there are twelve repayments in a year which is 36

PV is the present value of the loan which is $10,625

FV is the future which is zero

=pmt(0.001666667 ,36,-10,625,0)

=$304.33